Grim October Raises Retail Stakes for November, December

Heavy Promotions Are Expected After 'Black Friday'; Stores Get Conservative With Inventory

CHICAGO (AdAge.com) -- A bleak holiday sales picture got downright grim this morning with October retail sales figures, which for the most part failed to hit even a low bar.

The sales results were generally consistent with recent retail trends of high-end and discount stores outperforming those in the middle, but there were still a few surprises. Wal-Mart missed expectations, and Nordstrom reported a small drop in same-store sales. The only bright spots were polar opposites as well: Saks' same-store sales were up 11%, while Costco's were up 9%.

Expected to be dismal
Many analysts pointed to the economy and the warm weather as the reason for the sluggish month. October results had been expected to be dismal. But many of the returns were worse than expected, including Macy's, falling 1.5%; JC Penney, down 1.8%; Limited, sliding 6% and Gap, an 8% spiral from an already low mark.

"Sometimes the middle-of-the-road stores get caught between diamonds and discounts when the economic environment is like this," said Scott Krugman, a spokesman for the National Retail Federation.

The result could mean there will be some unhappy shoppers come mid-December, as retailers have been conservative in planning inventories this year. Sales this sluggish are assumed to create pent-up demand, so procrastinators could be left out in the cold, according to Mr. Krugman.

"Each year it seems like consumers play that game of chicken with retailers, waiting to see who is going to blink first," he said. "This year, if the consumer waits too long to start their holiday shopping, they might be out of luck in terms of the first and second choices."

Wal-Mart's ripple effect
If the early days of November are any indication, stores are going to get highly promotional. Wal-Mart cut its prices to Black Friday levels last week. (Black Friday got its name because many stores get see black for the first time on the day after Thanksgiving.) But "when Wal-Mart cuts prices, it has a ripple effect," Mr. Krugman said.

Carl Steidtmann of Deloitte & Touche disagreed, saying that retailers have been extremely conservative with inventory and there's unlikely to be a "wild" or "unplanned" promotional atmosphere, which is beneficial to consumers.

"Inventory levels are a better predictor of promotional activity than consumer demand," he said. "And the fact that retailers have planned so conservatively will allow them to get through the holidays."

Mr. Krugman, on the other hand, said to expect more midnight openings than usual on the day after Thanksgiving.